Franchising offers several advantages for would-be business owners, but like any other business, there are also some disadvantages that you should be aware of before embarking on a franchise purchase. Mentioned below are a few pros and cons of the franchise business.
1. Reduced Risk: The likelihood of success is higher and risk is minimized in a franchise business because the business formula is already proven and it is running successfully in the native land. The products, services, and business operations are already well established, so it is expected to develop well in global locations as well.
2. Financing: Franchise is a business which would have already undergone a trial by fire and succeeded. So it is a safer option to invest in international franchise business. This makes it much easier to finance, as far as getting loans from banks. If a franchise’s success and reputation can be clearly shown to the bank then the process of getting finances becomes much simpler and easier.
3. Brand Recognition: The brand will be already well established both nationally and internationally. Global franchise Marketing would have been done already by the company itself. Consumers usually prefer getting products from a well recognized and trusted brand. So, there will be a boost in sales from the early stage itself.
4. Franchisor Support: The franchisor will stand as a support system for you in all terms of business. Especially when you own a franchise business where the origin of the company is from another country you need to have at most supervision to succeed. The franchisor will guide and assist you in all forms.
5. Franchise Training: You don’t need to have prior knowledge about the industry or business. Franchisors will not just train you, but also your team in providing adequate knowledge to run a successful international franchise business.
1. Lack of creativity: In a franchise business, you should follow the business plan and operations as mentioned by the franchisor. You will not get a chance to showcase your thoughts and your creativity will be restricted. This is a major drawback in the franchise business.
2. Cost: The initial investment of taking up a franchise business can be higher than you expect. Also, many franchises charge ongoing royalties chopping into the revenue of franchisees. You also have to pay additional costs to equipment, store, overhead, and marketing supplies.
3. Association Problem: Your franchise business success depends upon the franchisor reputation. If the corporation develops a bad reputation in the industry, then it will affect your business as well. How much ever you put your efforts to present the franchise outlet, success is built upon franchisor reputation.
4. Split In Profits: In the international franchise business, Profit share can vary between 20%-50% depending on how much amount of investment the franchisor is bringing into the business. The downside of profit sharing is that the consensus on decision making can be a bit sloppy and can often lead to disagreements.
5. Limited Exit Strategy: If you want to get out of the franchise it is way too difficult and sometimes it’s impossible to do. Franchises have strict rules, that’s hard to follow. You must always abide by the rules mentioned in the franchise agreement. Like any other business model, franchise business has its own advantages and disadvantages. Nonetheless, owning a franchise business is still the best and safer way to kick off your journey as an entrepreneur.